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PM Bulletin: BOJ and the yen
31 May 2016
AM Bulletin: Quiet start following holiday weekend
31 May 2016
PM Bulletin: Meanwhile in China
27 May 2016
AM Bulletin: Yellen in focus ahead of holiday weekend
27 May 2016
PM Bulletin: FTSE breaks above 6,200 again
26 May 2016
Holiday Schedule: Memorial Day 30th May 2016
26 May 2016
AM Bulletin: Brent crude tops $50
26 May 2016
PM Bulletin : Crude Chart
25 May 2016
AM Bulletin: “Risk-on” trade continues
25 May 2016
PM Bulletin: Another poll boost for sterling
24 May 2016
AM Bulletin: Equities slip as rate hike worries persist
24 May 2016
PM Bulletin: Changing expectations
23 May 2016
Weekly Bulletin: I’ll see your hike and raise you two
23 May 2016
PM Bulletin : Significant events ahead of June FOMC
20 May 2016
AM Bulletin: Preparing for a summer rate hike
20 May 2016
PM Bulletin : Gold struggles as dollar strengthens
19 May 2016
AM Bulletin: FOMC more hawkish than anticipated
19 May 2016
PM Bulletin : FOMC minutes and the S&P
18 May 2016
AM Bulletin: FOMC minutes in focus
18 May 2016
PM Bulletin: Cable rallies on latest poll
17 May 2016
AM Bulletin: US equities lead bounce-back
17 May 2016
Weekly Bulletin : Waiting on Central Banks
13 May 2016
PM Bulletin : Apple
13 May 2016
Holiday Schedule Whit Monday Market Holiday
13 May 2016
AM Bulletin : US Retail Sales in focus
13 May 2016
PM Bulletin : Silver and Gold
12 May 2016
AM Bulletin: Investors wary after Wall Street sell-off
12 May 2016
PM Bulletin: Two headaches for Elon Musk
11 May 2016
AM Bulletin: Stock indices pull back after rally
11 May 2016
PM Bulletin: Yen pulls back on jawboning
10 May 2016
AM Bulletin: Markets steady on commodity bounce
10 May 2016
PM Bulletin: Precious metals give back recent gains
09 May 2016
Weekly Bulletin: Poor Non-Farm Payroll causes concern
09 May 2016
May: Non Farm Payrolls Out Today
06 May 2016
PM Bulletin: A dismal Non-Farm Payroll number
06 May 2016
AM Bulletin: Non-Farm Payrolls in focus
06 May 2016
PM Bulletin: Non-Farm Payroll look-ahead
05 May 2016
AM Bulletin: Crude bounce lifts equities
05 May 2016
PM Bulletin: Apple update
04 May 2016
AM Bulletin: Equities under pressure
04 May 2016
PM Bulletin: Aussie dollar slumps
03 May 2016
AM Bulletin: RBA cuts by 25 basis points
03 May 2016
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Indices Update
 

European equity markets were on the back foot in early trade this morning. This followed a lacklustre US session and a sell-off in Asian Pacific markets overnight. Crude oil was weaker first thing while the dollar was a touch firmer.

It was a mixed start to trading early yesterday. European indices began in positive territory but lost ground as the morning progressed. Investors were unwilling to take on risk initially as crude lost ground early in the session. However, equity markets climbed off their lows later in the day as the oil price bounced back following reports of a bigger-than-expected drawdown in crude inventories at the Cushing, Oklahoma storage hub.

Early on Monday data from Japan showed that manufacturing activity had contracted at its fastest pace in more than three years in May. In addition, April’s trade numbers showed a surplus of 823 billion yen ($7.5 billion). This looks good on the surface. However, the surplus came about through a decline in exports of 10.1% year-on-year, while imports slumped 23% over the same period. Overall, the weak data just adds to the likelihood that the Bank of Japan will announce additional monetary stimulus at next month’s meeting.

Meanwhile, country by country, it was a mixed bag for European manufacturing and services. However, for the Euro zone as a whole May’s Manufacturing PMI came in below expectations and the prior month’s reading. The economic area’s Services PMI was unchanged from April and also below expectations.

According to FOMC member and Boston Fed President Eric Rosengren the US is on the verge of meeting most of the economic conditions the Fed has set to increase interest rates next month. Despite this, and comments from other Fed members such as James Bullard, investors have calmed down somewhat after repricing the prospect of a slew of Fed rate hikes for the rest of the year. Last week’s minutes from the April FOMC meeting were more hawkish than expected. On top of this a number of Fed members have spoken out in favour of a summer hike. However, militating against this is the fact that we are in the US Presidential Election year, there’s an upcoming referendum on the UK leaving the EU and both the US and global economic outlooks could best be described as cloudy.

The FTSE 100 index closed at 6,136.4 down 19.9 points on the day, or 0.3%

The German DAX fell 73.7 points or 0.7% to end the day at 9,842.3

The US30 closed down 8 points to finish at 17,492.9. The S&P 500 fell 4.3 to close at 2,048 while the Nasdaq 100 slipped 0.2% to close at 4,355.1

Equities

Ryanair (RYA) raised the prospect of a price war as it announced plans to cut fares. Everyone’s favourite airline (?) vowed to cut prices by an average of 7% over the current financial year ending March 2017. CEO and BSE campaigner Michael O’Leary said the company’s strategy was to sell as many tickets as possible to counter the downturn caused by economic uncertainty and terrorist attacks. Ryanair reported an increase of 43% in net profits (€1.24 billion) for the year ended March 2016. However, the company predicted that net profit for the current financial year looked likely to rise by around 13%. Nevertheless, the stock ended 2.1% higher at €13.65

     
Commodities Update
 

Oil prices were lower in early trade yesterday thanks in some degree to the recent strength of the US dollar on the prospect of a Fed rate hike over the summer.  There are also signs that global crude supply is holding up despite unplanned outages. Nevertheless, the Canadian wildfires, militant activity in Nigeria, hostilities in Libya and the political crisis in Venezuela have all fed into the view that supply and demand could come back into balance sooner than was previously thought. However, over the weekend Iran's Deputy Oil Minister, Rokneddin Javadi, said Iran had no plans to join any output freeze since the country is still ramping up exports to pre-sanctions levels. He said the Republic’s shipments probably won't surpass 2.2 million barrels per day until midsummer. His comments make it even less likely (and it was already very unlikely) that OPEC will agree to any output freeze at its next meeting on 2nd June.

Adding to signs the oil market will remain oversupplied data showed last week the number of rigs operated by U.S. drillers held steady for the first time this year. This follows a near two-year slump in the rig count.

Crude bounced off its lows later in the session after data from Genscape showed a bigger-than-expected drawdown in US inventories at the Cushing, Oklahoma hub. However, US inventory data is proving to be volatile. Last week crude dipped sharply following the latest inventory update from the Energy Information Administration (EIA). This showed a build in stockpiles of 1.3 million barrels last week on expectations of a 3.1 million barrel decline.

Gold and silver were weaker again yesterday. Both metals began the day lower, despite an early pull-back in the US dollar, and never really recovered. The problem now for all dollar-denominated commodities is that investors have been forced to price in the increased possibility of a US rate hike this summer. This follows last week’s release of the minutes from the FOMC’s April meeting and a ton of hawkish rhetoric from members of the Federal Reserve. The problem is that the prospect of higher rates boosts the dollar making everything priced in dollar more expensive for non-dollar holders. In addition, a US rate hike makes holding gold superficially less attractive than assets which actually pay interest. However, it’s worth remembering that gold and silver rallied sharply over the first quarter of 2016 despite the Fed’s rate hike back in December. Nevertheless, precious metals could struggle to make much headway over the next few weeks, unless we hear some dovish comments from senior Fed members such as Janet Yellen, Stanley Fischer or Bill Dudley. But as things stand, it looks as if the Fed is anxious for the markets to price in a summer hike. Whether they actually pull the trigger is a different matter entirely.

Gold spent most of yesterday trading below the psychologically important $1,250 level. Support should come in around the lower upward-sloping trend line near $1,240. But a sustained break below here could see gold back to $1,220 or lower. 

Forex Update
 

There was a meeting of G7 finance leaders over the weekend held in Sendai, Japan. There appeared to be some lack of agreement between the Japanese hosts and the US over exchange rate policies. Japan’s Finance Minister Taro Aso expressed some frustration over recent yen strength and the impact this was having on exporters. He must also be concerned over the deflationary effects of a strong currency as Japan is desperate to inflate away its debt pile. Unfortunately, the yen has surged higher ever since BOJ governor surprised the markets back in January by adopting negative interest rates. But if Mr Aso was expecting some help from fellow G7 finance ministers he was out of luck. According to Reuters US Treasury Secretary Jack Lew said that ‘it’s important that the G7 has an agreement not only to refrain from competitive devaluations, but to communicate so that we don’t surprise each other’.

The yen rose in early trade yesterday with the USDJPY once again closing in on the 109.00 level. Data on Monday morning showed an unexpected rise in Japan’s trade surplus which hit its highest level since March 2010. However, this was on the back of a 23.3% year-on-year slump in imports while exports fell 10.1% over the same period. The main takeaway was that Japan’s domestic demand has cratered which doesn’t indicate a healthy economy. 

Upcoming events
 

Today’s significant data releases include UK Public Sector Net Borrowing, German ZEW Economic Sentiment survey, Euro zone ZEW Economic Sentiment survey, UK Inflation Report Hearings, UK CBI Realised Sales, Eurogroup meetings, ECB Financial Stability Review, US New Home Sales and Richmond Manufacturing Index. 

Disclaimer:

Spread Co is an execution only service provider. The material on this page is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by Spread Co Ltd or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

 

Posted by David Morrison

Tagged: AM Bulletin

Category: AM Bulletin


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